Posted on 06/10/2011 12:41:30 PM PDT by Palter
“Failure to strictly comply with the terms of the PSA means that the loan at issue was never properly transferred to the trust”
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Not only did the Honorable Archie C. Brown destroy MERS, he discusses the PSA and securitzation failures in great detail…
From the ruling…
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The contention that the contract between MERS and First Franklin provided MERS with an ownership interest in the note, as the court in RFC held, stretches the concept of legal ownership past the breaking point. The Legislature used the word “owner” because it meant to invoke a legal or equitable right of ownership. Viewed in that context, although MERS owns the mortgage, it owns neither the debt nor an interest in any portion of the debt, and is not a secondary beneficiary of the payment of the debt.
Plaintiffs in RFC also argued that MERS had the authority to foreclose by advertisement as the agent or nominee for the Lender, who held the note and an equitable interest in the mortgage. The court in RFC disagreed, holding that it failed under the statute because the statute explicitly requires that, in order to foreclose by advertisement, the foreclosing party must possess an interest in the indebtedness. MCL 600.3204(1)(d). Thus, the Legislature’s choice to permit only servicing agents and not all agents to foreclose by advertisement must be given effect.
The court in RFC opined that the separation of the note from the mortgage in order to speed the sale of mortgage debt without having to deal with all the “paper work” of mortgage transfers appears to be the sale reason for MERS’ existence. The flip side of separating the note from the mortgage is that it can slow the mechanism of foreclosure by requiring judicial action rather than allowing foreclosure by advertisement. To the degree there were expediencies and potential economic benefits in separating the mortgagee from the noteholder so as to speed the sale of mortgage-based debt, those lenders that participated were entitled to reap those benefits. However, it is no less true that, to the degree that this separation created risks and potential costs, those same lenders must be responsible for absorbing the costs.
Defendants argue that RFC is not on point because First Franklin pooled and transferred its interest in the loan, the Mortgage and Note, into a securitized trust over which USB became the trustee. First Franklin endorsed the Note to the order of First Franklin Financial Corporation, which thereafter endorsed the Note in blank, transferring it to USB and or USB’s agents; Exhibit A to Plaintiff s Brief.
Defendants further argue that MERS, as First Franklin’s nominee, drafted a recordable Assignment of Mortgage assigning the Mortgage together with the Note and all other obligations secured by said Mortgage to USB, as trustee, dated December 17,2009.
Defendants conclude by stating that on December 30,2009, the Assignment was recorded in the Washtenaw County Register of Deeds, and therefore, as a result of all of these actions, USB was the record owner of both the Mortgage and the Note in advance of any foreclosure.
Plaintiff’s in response, request that this Court declare that USB, successor to the trustee First Franklin Mortgage Loan Trust, Mortgage Loan Asset-Backed Securities, Series 2006-FF18 has no interest in the mortgage loan that is the subject matter of this action and cannot foreclose, judicially or otherwise, that loan. Plaintiffs’ contend that USB never actually received ownership of the Plaintiffs’ mortgage loan because the loan was not ever properly transferred to USB according to the terns of the First Franklin Mortgage Loan Trust, Mortgage Loan Asset-Backed Certificates, Series 2006-FF18′s Pooling and Service Agreement (“PSA”), and the assignments that occurred in this case did not follow the law of trusts in the State of New York to validly transfer the trust to USB. The Court was provided a copy of the PSA at an earlier hearing for its review. The Court finds, upon reviewing the PSA, that the trust was created on December 1, 2006 and had a closing date of December 28, 2006. PSA pages 36-37. The closing date establishes when the trust assets musts be transferred to the trust.
Merrill Lynch Mortgage Investors, Inc., is the depositor. PSA p. 38. Pursuant to Section 2.01(A), the depositor has to deliver the mortgage loan to the trustee, in this case USB. Plaintiff contends that there should be an endorsement from First Franklin Financial Corp to Merrill Lynch, and an endorsement from Merrily Lynch to the trustee (originally LaSalle Bank National Association) or, at least an endorsement in blank by Merrill Lynch. The Court finds that there is only an endorsement from First Franklin, a division of National City Bank, to First Franklin Financial Corp, then an endorsement by First Franklin Financial Corp in blank. Plaintiffs’ Exhibit B. PSA Sec. 201(A) requires that the Mortgage Note shall include all intervening endorsements showing a complete chain of title. Plaintiffs’ Exhibit A. Since the Note never passed to Merrill Lynch the trust could not have validly received it.
PSA Sec. 201(E) requires the depositor to deliver originals of any intervening assignments of the Mortgage,with evidence of recording thereon. Plaintiffs’ Exhibit A. The record before the Court is that the only assignment of the mortgage that was recorded was the assignment from MERS to USB, as trustee. Plaintiffs’ Exhibit C. However it is clear from the record that the mortgage note was actually transferred from the originator ofthe loan, First Franklin, a division of National City Bank, to First Franklin Financial Corp. The Court finds that the transfer of the mortgage note from First Franklin to First Franklin Financial Corp also transferredthe underlying mortgage. However, this transfer was never reduced to a mortgage assignment that was recorded with the Washtenaw County Register of Deeds, presumably because MERS purportedly held legal title to the mortgage itself but had nothing to do with this particular transfer. The Court further finds that PSA Sec. 201(E) was not complied with because the transfer from First Franklin to First Franklin Financial Corp. was’ never recorded.
Defendants’ failure to strictly comply with the terms of the PSA means that the loan at issue was never properly transferred to the trust. Any transfer of mortgage loans, such as Plaintiffs, was mandated to comply with New York Trust law and the terms and conditions of the PSA governing conveyance of mortgage loans into the Trust. PSA pp 155 and 36. This the Defendants did not do.
The Court finds that the “Assignment”, recorded on December 30, 2009 in the Washtenaw County Register of Deeds, serves to transfer nothing. The alleged conveyance failed to comply with the terms and conditions of the PSA and New York Trust law which governs the PSA. The alleged conveyance stated that MERS assigned the Mortgage and Promissory Note to USB, however, there has been no evidence presented to support the chain of the required assignments and endorsements of the mortgage and note as required by the terms and conditions of the PSA.
Other than First Franklin, a division of National City Bank, none of the Defendants owned the indebtedness, owned an interest in the indebtedness secured by the mortgage, or serviced the mortgage.
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So there you have it folks. I believe this is the second ruling of its kind with the first coming out of Alabama…
We might have something here that may be catching on…
Full opinion below…
Truly moronic if you ask me. It is business. I suppose business was booming so they hired a bunch of people who didn’t really know what they were doing. But of all things, if you are going to trade hundreds of billions of dollars you would think that the simplest things like making sure you got title would be taken care of...
I suppose it was so “obvious” that nobody thought to put it into the contracts? It’s inexplicably stupid of them.
Truly moronic if you ask me. It is business. I suppose business was booming so they hired a bunch of people who didn’t really know what they were doing. But of all things, if you are going to trade hundreds of billions of dollars you would think that the simplest things like making sure you got title would be taken care of...
I suppose it was so “obvious” that nobody thought to put it into the contracts? It’s inexplicably stupid of them.
So, basically this was all just a way to avoid filing fees?
Those people were some of NY's highest paid legal firms if it is any comfort to you.
Isn’t that why you have title insurance?
Until the banks get their act together, this will happen. Is this morally any wronger than declaring a bankruptcy when a risky (but not fraudulent) venture fails?
” the original mortgage holder still holds the rights to foreclose and I suppose ultimately they just unwind these transactions and then foreclose. “
Not quite - the original Mortgage Holder ***has already been paid***, and therefore has no reason, or standing, to foreclose....
In effect, the position of the investors who bought the mortgage from your original lender, would be like if your brother-in-law hit the lottery and paid your mortgage off for you...
Just say “thank you”, and collect your clear title....
That, and to accelerate how quickly the banks could peddle mortgages between themselves.
When the mortgages had to be recorded, worst case, it might take a couple weeks before the sale of mortgages was done. With MERS, they wanted these transfers down to a couple/three days, worst case.
When one peels back the nonsense involved in the real estate scams of the last 10 to 15 years, one sees that the banks have screwed themselves. The issue of low to no down payments? That was the doing of Countrywide Finance lobbying DC, and bankers got what they wanted. The collapse of firewalls between deposit banks and investment banks and insurance companies? Also their own doing, via lobbying. Wickedly absurd leverage ratios? Banks got that because they (Hank Paulson, before he was Treasury Secretary) asked for it.
The accelerate of defaults on mortgages? A consequence of the 2005 bankruptcy law, which the banks wanted.
The consequences of MERS? The whole edifice was created by banks. No one forced the banks to create MERS, no one is forcing them to use it.
The banks are getting what they asked for. They just didn’t realize that they were going to get it so good and hard....
Remember the bank sold off the loan to some other entity and made money on it. Do you expect that same bank to foreclose and get the house back to resell it and make money again?
Except that’s not why the courts are doing it, they’re doing it as a loophole to let people who don’t pay their mortgage keep their homes.
No the courts are not doing to let people keep their homes. It is to keep the title clean. Let’s say to go buy a house with a loan with bank A. Then three years later Bank B shows up and says we never got paid from the last loan on the house and foreclose on YOUR home even though to have been paying Bank A. You would be HOT wanting to know who to sue. With this type of crap going on you can’t get title insurance for your future home. It has nothing to do with the deadbeats staying in the house.
You can read a Court's mind?
I’m not debating that there is a problem here with the way these transfers are done.
You just want to ignore those problems and toss about 300 years of well established real estate law out the window because you don't like the outcome.
I’m simply asking in an age of economic turmoil what it will ACCOMPLISH.
I accomplishes the reinforcement of about 300 years of well settled real estate law and forbids a bunch of bankers and Wall Street types from making an end run around it. That's what it accomplishes.
The RESULT of applying this carte blanche would be CHAOS.
TFB. They took the risk, now they get to pay. Unless you're one of those "it's too big to fail" types.
Why not just declare every mortgage using MERS null and void,
That's probably exactly what's going to happen. Which is as it should be. There's no legal basis for MERS anyway.
“So, basically this was a way to avoid filing fees?”
Well there was that, but it was chickenfeed.
Of course it would facilitate a single mortage on a single property to be sold multiple times, to the Bank of China ,the Colorado Volunteer Firemens Pension Fund, the German Central Bank, the Tennessee Walking Horse Fanciers Endowment, the Bank of Japan, the...well you get the idea.
This is why I’ve been advocating that the GOP get their head out of their plump posteriors and start learning about this stuff. Someone needs to take charge of this situation before it snowballs.
But nooooo. The GOP wants to keep parroting their focus-group talking points. “Less regulation. Free markets. Blah, blah, blah.”
In short, the DNC are the evil party, because they helped set the stage for this with their idiotic destruction of lending requirements for minority borrowers. The GOP, being the Stupid Party, went along with it, then doubled down with “less regulation, tastes great.”
The only way to get control of the financial situation in the US now is to re-regulate the markets. Get the crap out into the open, and DEAL with it.
Instead, right now, we’re copying Japan’s lost two decades of “extend and pretend.” Extend sovereign credit to prop up the banks as the turds hit the turbine blades, and pretend that it is all OK. This is also being done in Greece right now too. It won’t work in either place. The Japanese had enough wealth in their society to not need to borrow externally to cover up their banking fiasco. Both the US and Greece depend on external borrowing to prop their messes up.
The adult thing to do is admit that the situation needs to be cleaned up. There are banks that will go under. Quit pretending that the crap on their balance sheets is serviceable debt. It isn’t, so quit pretending that it is worth something. There are bankers who committed mail and wire fraud in selling bogus mortgage “backed” securities. There are banks committing frauds upon the courts in these foreclosure proceedings. Indict them and send a message. As they say in French: “Pour l’encouragement d’ les autres.” They used this when they’d shoot deserters from the FFL. Likewise, the best way to get bankers to adhere to the law is make a few bankers truly miserable. Make them into paupers, wipe out their families, destroy their lives by convicting them of the frauds they committed and put them in prison. Why should Bernie Madoff be in prison for only $50B in fraud when there are bankers out there who have committed at least five times that in mortgage security fraud?
Look, we had a huge problem in the S&L scandal. We came through it, right? Want to know why? Because bankers went to prison as a result of it. The fraudsters got wiped out, a whole bunch of debt was peddled off through the RTC to speculative investors, we closed up a whole bunch of banks, etc. We cleaned up the mess. It was painful, but we did it, and we got through it.
The GOP could do much worse than to take a lesson from those days.
Every read the “fine print” on title insurance?
Go do that.
“Is this morally any wronger than declaring a bankruptcy when a risky (but not fraudulent) venture fails?”
Yes. It is.
A bankruptcy court process of a business does not allow the owners or the business to simply walk away from all their creditors. In fact, certain creditors can be required to be paid by the sale or confiscation of the owners/businesses assets, and certain creditors have top pick at converting debt to an equity stake, and certain creditors may be awarded payment from future revenue of the business after it is re-organized - and many other possibilities as well.
But, in almost every state in the U.S., a homeowner can just walk away and the mortgage-holder has “no recourse” because in almost every state all mortgages are by law “no recourse” mortgages. That is not the case in most other countries.
In most other countries if a mortgage holder forecloses on a mortgagee who is in default, the mortgagee will still owe whatever principal remains on the mortgage after the property is auctioned. Why? Because that is the amount of money the mortgage holder gave to the mortgagee.
In the U.S., they can never come after you for that loss. They can give you a million dollars and you can give them a few years of payments that (in the early years) just pay interest and no principal; and then you can walk away, “Scott free”, no matter how much of that million ever gets repaid to the people that gave it to you. Sorry; that’s immoral.
I would be a perspective landlord.
But I’m not going to spend thousands of dollars per house to quiet the title.
ESPECIALLY when I’d be buying some of these properties for cash. When it is 100% my money on the line, you can bet your buttcheeks that I want that title to say that I own it, period, full stop.
It prices fall another, oh, 10 to 20% ... then it might make sense to start buying residential real estate and hire a lawyer to quiet titles for me. But at current prices, no, it isn’t cheap enough yet. Understand, I’m in a residential market that is going down more slowly than many other markets. If I were in some places, eg, Reno NV, I might well be buying right now and have a lawyer on retainer to handle it.
This is all about expected returns in the future. Real estate will continue to go down until there is organic wage growth to put a bottom under real estate prices, and in some places, real estate will continue to go down as bankers start putting more and more property into the market. Only in Nevada do I see that prices are getting close(r) to a real bottom. In other markets (eg, Floriduh), they’re in for a bunch more pain. In California, they’re in for a bunch more pain.
The only residential market where valuations aren’t and haven’t been going down is the area around Washington DC. And that’s an indication of the larger problem in this country.
Julius Caesar
Works every time...and the hour is very late my friends.
You’re quite simply wrong.
First, In all states, a person who simply walks away from a mortgage will have a tax liability with the IRS for getting out from under the debt without going through BK. So there ain’t a free lunch out of this. If you walk away from a $500K mortgage on which you had nothing down and you hand in the keys on a house now worth $250K, and the bank lets you, guess what? You have a $$250K income event which you must report to the IRS.
Here are the non-recourse states: Alaska, Arizona, California, Connecticut, Florida, Idaho, Minnesota, North Carolina, North Dakota, Texas, Utah, Washington. There are other states where a creditor can bring only one legal action against a debtor - ie, they’d better get it correct on the first crack.
In California, only the first loan to purchase a home is non-recourse, seconds and HELOCs can come after you for deficiency.
Now, as to bankruptcy, which you have egregiously incorrect:
There are multiple forms of bankruptcy. In the US code, there are four chapters that are applicable to individuals, not only businesses.
OK, one is a hybrid - Chapter 12 - for farmers and fishermen. Let’s put that aside.
Chapter 7 is a declaration of insolvency. Your assets are liquidated, and the court distributes the results to your creditors, who have to take what they can get. You are flat busted broke, but get your debts discharged (aside from student debt) and you get to start over.
Chapter 13 is used to get your debts restructured. Your creditors might have to reduce what you owe, or they have to get it back over a longer period of time. You do NOT get to walk away from everything.
Chapter 15 is a new chapter of the US BK code, and is designed to deal with debtors who had money loaned to them from within and *outside* the US, where there are claims of debt across international boundaries. That’s probably not going to come into play for most homeowners.
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